Goldman Sachs said markets may be overpricing stagflation risks and the threat of higher U.S. Treasury yields, arguing that a softer inflation backdrop could emerge as tariff effects fade, energy prices potentially decline, and AI-driven efficiency lowers costs. The bank said U.S. growth may slow, but core corporate earnings could remain resilient, creating the conditions for a "Goldilocks" scenario in which inflation cools without a sharper deterioration in profits.
According to Goldman partner Mark Wilson, recent market action already points in that direction, with AI-related assets drawing fresh capital after several months of consolidation. Goldman chief economist Jan Hatzius said upside risks to U.S. growth are diminishing as fiscal stimulus fades and gasoline prices and mortgage rates rise, which could further slow growth and limit how far central banks can keep raising rates. Ben Snider, head of Goldman’s U.S. strategy team, said core earnings could still post strong growth through at least the end of 2027 despite temporary excess profits in some sectors. On that basis, Goldman said markets could gradually shift from a stagflation trade to a Goldilocks trade, and a year-end equity rally may not need to wait until after the U.S. midterm elections.
Goldman Sachs said on Sept. 27 that markets may be overpricing stagflation risks and the possibility of higher U.S. Treasury yields. The bank said inflation pressure in the United States could ease as tariff effects fade, energy prices potentially fall, and AI helps lower costs.
At the same time, Goldman said economic growth may slow, but core corporate earnings could stay resilient. Under that "Goldilocks" setup, enthusiasm for AI investment could pick up again, and a year-end rally in U.S. equities may begin before the U.S. midterm elections are over.
Goldman points to easing inflation pressure and resilient earnings
Mark Wilson, a partner at Goldman Sachs, said recent market moves have already shown signs of that shift. He said AI-related assets, after several months of consolidation, are once again attracting capital.
Goldman economist Jan Hatzius said upside risks to U.S. growth are weakening. As the effect of fiscal stimulus fades and gasoline prices and mortgage rates rise, economic growth could slow further, which in turn may limit the room central banks have to continue raising interest rates.
Ben Snider, head of Goldman’s U.S. strategy team, said that although some industries are seeing temporary "excess profits," core corporate earnings could still maintain relatively strong growth through at least the end of 2027.
Market positioning could rotate away from stagflation
Based on that view, Goldman said that if inflation keeps easing, growth slows at a moderate pace, and corporate earnings remain resilient, markets could gradually move away from the previous stagflation trade and toward a Goldilocks scenario.
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